Finland-based Nokia and French telecom gear maker Alcatel Lucent on Wednesday announced their merger in a 15.6 billion euro deal.

The deal has been worked out to foster innovation capabilities, with Alcatel-Lucent’s Bell Labs and Nokia’s FutureWorks.

Nokia Group will lead Nokia Corporation with Risto Siilasmaa pegged to serve as Chairman and Rajeev Suri as Chief Executive Officer.

“Together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services, with the scope to create seamless connectivity for people and things wherever they are.

Our innovation capability will be extraordinary, bringing together the R&D engine of Nokia with that of Alcatel-Lucent and its iconic Bell Labs. We will continue to combine this strength with the highly efficient, lean operations needed to compete on a global scale,” Nokia President and Chief Executive Officer Rajeev Suri said in a statement.

Alcatel-Lucent shareholders are proposed to own 33.5 per cent of the fully diluted share capital of the combined company -- Nokia Corporation -- and Nokia shareholders would own 66.5 per cent, assuming full acceptance of the public exchange offer.

“The two companies have entered into a memorandum of understanding under which Nokia will make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and in the United States, on the basis of 0.55 of a new Nokia share for every Alcatel-Lucent share.

“The all-share transaction values Alcatel-Lucent at 15.6 billion euro on a fully diluted basis, corresponding to a fully diluted premium of 34 per cent (equivalent to 4.48 euro per share), and a premium to shareholders of 28 per cent (equivalent to 4.27 euro per share),” the statement said.

Nokia Corporation would target approximately 900 million euro of operating cost synergies to be achieved on a full year basis in 2019 and approximately 200 million euro of reductions in interest expenses to be achieved on a full year basis in 2017.

Under the deal, Nokia Technologies, which develops and licenses patents, and the Nokia brand will stay as a separate entity.

“With more than 40,000 Research and Development employees and spend of 4.7 billion euro in R&D in 2014, the combined company -- Nokia Corporation -- will be in a position to accelerate development of future technologies, including 5G, IP and software-defined networking, cloud, analytics as well as sensors and imaging,” the statement said.

The Board of Directors of both the companies have approved the terms of the proposed transaction, which is expected to close in the first half of 2016.